Government eases banking regulations to foster growth

Posted on : 2008-04-01 13:00 KST Modified on : 2019-10-19 20:29 KST
Private equity funds and pension funds will be allowed to become major shareholders in banks
 The Chair of Financial Services Commission(middle) talks with Kang Man-soo
The Chair of Financial Services Commission(middle) talks with Kang Man-soo

The Financial Services Commission on March 31 briefed President Lee Myung-bak on the direction of policies to foster the financial industry as the nation’s new growth engine. Under these policies, private equity funds, or PEFs, can become major shareholders in banks from the second half of this year and the existing separation between banking and commerce, which bans industrial capital from acquiring banks, will be abolished. According to the FSC report, stock and insurance firms and non-bank financial holding companies will be able to acquire manufacturers as their affiliates and, as a consequence, large conglomerates will likely strengthen their control using the savings of financial companies as leverage.

To remove the separation of finance and industry, the FSC will carry out its plan to ease current regulations that ban industrial capital from owning banks in three stages. The first stage will remove the regulation on PEFs and pension funds, allowing them to own stakes in banks sometime this year. To accomplish this, it is likely that the government will raise the equity ceiling for investments by industrial firms in PEFs from the current 10 percent. During the second stage, the FSC is expected to increase the industrial capital investment ceiling to 10 percent from the current 4 percent. In the third stage, the FSC will completely remove the related regulations and strengthen follow-up supervision.

Im Seung-tae, a high-ranking FSC official, said that the first and second stages could take place at the same time, indicating that the nation’s mega companies could have control over banks within one or two years, depending on public reaction to the measures.

Another part of the FSC’s plan will allow non-bank financial holding companies to have non-financial firms as their subsidiaries. Looking at Samsung Group, this means that Samsung Life could be a holding company with Samsung Electronics as its affiliate. The government also plans to privatize the state-run Korea Development Bank by 2012.

President Lee, commenting on these reforms, emphasized the responsibility and self-regulatory functions of financial firms. He stated his objections to gradual change and stressed the necessity of achieving simultaneous reform.

In a statement issued on the same day, Kim Sang-jo, the executive director of the Solidarity for Economic Reform, said the government’s plan to abolish the separation between finance and industry would only be favorable for jaebeol, Korea’s large, family-run conglomerates, and were likely to threaten the safety and stability of the market order.

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